A Myth Shattered: Mises, Hayek, and the Industrial Revolution

Woods, Thomas E., Jr., Ideas on Liberty

The standard view of the Industrial Revolution among the general public is that it led to the widespread impoverishment of people who had hitherto been enjoying lives of joy and abundance. For at least the past several decades, however, alternative interpretations of this critical period have grown so abundant that even Western civilization textbooks, always the last to adapt to new trends in scholarly thinking, have been forced to concede the existence of what is referred to as the "standard of living debate" surrounding the Industrial Revolution. Already in the 1940s and 1950s, the great Austrian economists E A. Hayek and Ludwig von Mises were among those who advanced an alternative view.

One of the reasons that so many falsehoods and fallacies had come to surround our understanding of the Industrial Revolution, according to Hayek, was that the historians who had studied the matter had been blinded by their own ideological preconceptions. Many of them were Marxists, who believed as part of their creed that industrialization simply had to have made the workers miserable. As Hayek puts it: "[B]ecause the theoretical preconceptions which guided them postulated that the rise of capitalism must have been detrimental to the working classes, it is not surprising that they found what they were looking for." In short, they had not approached the evidence in the spirit of impartial rationality that befits a scholar, but rather with the ideological ax to grind that characterizes the propagandist.1

Economist and philosopher Leopold Kohr was far from alone among intellectuals suspicious of capitalism when he suggested in his book The Breakdown of Nations (1957) that the tremendous rise in reform movements and social criticism in the wake of the Industrial Revolution must have been an indication of worsening conditions. "[A]n increase in reform movements," wrote Kohr, "is a sign of worsening, not of improving, conditions. If social reformers were rare in former ages, it could only have been so because these were better off than ours."2

But according to Hayek, this is not necessarily so; in fact, the exact opposite is more likely the case. The very fact that we hear complaints in the late eighteenth and early nineteenth centuries about the appalling conditions in which many people lived and worked is, ironically enough, a point in the Industrial Revolution's favor. Before the Industrial Revolution, everyone fully expected to live in abject poverty, and what is more, they fully expected a similar fate for their descendants. The astonishing wealth that the Industrial Revolution brought forth now made people impatient with any remaining pockets of poverty. Before the Industrial Revolution, when everyone lived in grinding poverty, no one noticed or expressed outrage. Thus, as Hayek notes, we see in the eighteenth century "an increasing awareness of facts which before had passed unnoticed." He goes on: "The very increase of wealth and well-being which had been achieved raised standards and aspirations. What for ages had seemed a natural and inevitable situation, or even as an improvement upon the past, came to be regarded as incongruous with the opportunities which the new age appeared to offer. Economic suffering both became more conspicuous and seemed less justified, because general wealth was increasing faster than ever before "3

One might also mention in this context the famous observation of the great economist Joseph Schumpeter. He offered the additional argument that more than anything else the stupendous wealth which capitalism created was, ironically, what enabled the critics of capitalism to occupy the position of full-time intellectual, enjoying the comforts of leisure and civilization that the system they so decried made possible. Schumpeter feared, in fact, that this development would prove fatal to capitalism. The rise of a distinct class of intellectuals, utterly ignorant of economics, who blame capitalism for every social ill would tend over time to wear down the public's attachment to the system and would ultimately lead to the replacement of capitalism by an avowedly socialist economy. …

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